Karnataka High Court
Marina Annette Rodrigues vs Vijaya Bank on 10 August, 2020
Author: John Michael Cunha
Bench: John Michael Cunha
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 10TH DAY OF AUGUST 2020
BEFORE
THE HON'BLE MR. JUSTICE JOHN MICHAEL CUNHA
WRIT PETITION NO.626 OF 2020 (GM-RES)
BETWEEN:
MARINA ANNETTE RODRIGUES
AGED ABOUT 44 YEARS
W/O RAKESH SINGH
N0.24, 2ND CROSS, THOMAS ROAD,
KAMMANAHALLI
BANGALORE-560084
...PETITIONER
(BY SRI: MANOHAR N, ADVOCATE)
AND
1. VIJAYA BANK
MAYO HALL BRANCH
PUBLIC UTILITY BUILDINGS, M.G.ROAD
BANGALORE-560001
REPRESENTED BY ITS
ASSISTANT GENERAL MANAGER
M.BAPI RAJU
2. G.SIRISH KUMAR REDDY
AGED ABOUT 36 YEARS
S/O SREE RAMULU REDDY
FLAT NO.401,
SREEDHANYATHA APARTMENTS
2
2ND MAIN, GOPAL REDDY LAYOUT
DODDA BANASWADI
BANGALORE-560043
...RESPONDENTS
(BY SRI:VIGNESH SHETTY, ADVOCATE FOR R1;
VIDE ORDER DATED 22.01.2020
R2-SERVED THROUGH HAND SUMMONS)
---
THIS WRIT PETITION IS FILED UNDER ARTICLE 226 OF
CONSTITUTION OF INDIA PRAYING TO ISSUE A WRIT, ORDER
OR DIRECTION IN THE NATURE OF WRIT OF CERTIORARI TO
QUASH PHYSICAL POSSESSION OF THE SCHEDULE PROPERTY
OF THE PETITIONER TAKEN ON 16.12.2019 (ANNEXURE-Q)
UNDER THE PROVISIONS OF THE SARFAESI ACT BY THE
RESPONDENT BANK AS ILLEGAL, ARBITRARY AND IN VIOLATION
OF PRINCIPLES OF NATURAL JUSTICE AND THEREFORE
VIOLATION OF ARTICLE 14 OF THE CONSTITUTION OF INDIA.
FURTHER ISSUE A WRIT, ORDER OR DIRECTION IN THE NATURE
OF WRIT OF MANDAMUS DIRECTING THE RESPONDENT BANK
TO RELEASE THE SCHEDULE PROPERTY FROM UNLOCK THE
SAME TO HAND OVER TO THE PETITIONER AND ETC.
THIS WRIT PETITION HAVING BEEN HEARD AND
RESERVED FOR ORDERS ON 04.08.2020 AND COMING ON FOR
PRONOUNCMENT, THROUGH VIDEO CONFERENCE, THIS DAY,
JOHN MICHAEL CUNHA. J, MADE THE FOLLOWING:-
3
ORDER
The petitioner, as owner of certain immovable property bearing No.24, 2nd cross, Thomas Road, Kammanahalli, Bangalore, measuring east to west 60 feet and north to south 50 feet, totally measuring 3000 sq.ft., entered into a Joint Development Agreement with the second respondent Mr.G.Sirish Kumar Reddy on 10.02.2017 (Annexure-'A'). Under the said agreement, petitioner permitted and authorized the second respondent (hereinafter referred to as the "Developer") to develop the above property by constructing a residential apartment building therein as per the plan sanctioned by the competent planning authority. It was specifically recited in the agreement that the petitioner shall not revoke the permission so granted till completion of the entire project within the prescribed period of 12 months from the date of commencement certificate issued by BBMP and a grace period of 6 months. The agency created under the said agreement was one coupled with interest. Clause 5.8 of the said agreement provided as under:- 4
"5.8 The Developer shall be entitled to obtain loan facility / facilities from a Nationalized Bank/s/ financier/s / financial institution/s / financial company/companies etc., as may be required for construction of the residential complex / apartment/s belonging to in the Schedule Property / developer/'s Construction Business/ to Developer's firm on the mortgage of or on the security of the development right/s of the Developer and on the Developer's Share of 50% in the Multistoried residential building/s/ apartment/s to be constructed which the Developer is entitled to, provided however, that there shall be no personal liability or any other liability of whatsoever nature on the Owner or Owner's share as specified in this Agreement/s, in respect of any such debts and the Developer indemnify and hold harmless the Owner against such liability that may be incurred, in the event of any default in repayment of any debt/s incurred by the Developer, recovery shall be enforced only against the Developer's share in the total built area to be constructed thereon. The Owner shall not be liable to answer any liability/liabilities created by the Developer at any time and further, any amounts that might be borrowed directly by the Developer through such course shall be for the purpose/s of 5 construction for the Developers Property and not for any other Purpose/s."
(underlining supplied) Further, clause 8.1 of the agreement provided that, "8.1 The Second Party shall not create any lien, charge or any other encumbrances, in respect of the Schedule Property or by virtue of any rights as may be conferred upon and vested with him by these presents until the physical possession of the Residential Apartment/s referred to in clause (5.2) is delivered by him to the owner/s, only to the extent of the Second Party's share identified as Apartment/s after the license and plan is sanctioned. However, assigning or re-assigning its rights to its nominee's except mortgaging or hypothecating its rights in respect of Schedule Property for borrowers of working capital funds from the Life Insurance, Housing Development Finance Corporation Limited, Commercial Banks, Housing Finance Corporations, CITI BANK and the like without affecting the right of the owner/s in respect of the consideration due to him. And further the Second Party undertakes to repay the said borrowed amount from the banks stated above. In the event of failure to repay the said amount by the Second 6 Party, the First Party is nowhere connected liable to the said borrowed amount."
(underlining supplied)
2. Pursuant to the above Joint Development Agreement, a General Power of Attorney was executed on 10.02.2017 by the petitioner in favour of the second respondent/ Developer to effect construction in the above properties and also to raise, borrow funds from Banks and financial institutions on security of the schedule property to the extent referred in para 10 of General Power of Attorney (Annexure-'B'). A Sharing Agreement (Annexure-'C') was also entered into between the parties on 13.02.2017, whereunder the following flats or apartments were allotted to the share of the second respondent/Developer.
SCHEDULE "C" PROPERTY Flat/s/ Apartment/s fallen to the share of the Second Party Developer:
Sl.No. Flat No. Built Up Area Super Built Up UDS on Area Land 1 103 259 324 96 2 104 551 689 205 3 106 398 498 148 7 4 201 213 266 79 5 202 202 253 75 6 204 551 689 205 7 205 397 496 148 8 206 398 498 148 Total 3712 Along with 2 car parking space in the Stilt floor in the residential building known as "The Nook" to be constructed therein together with above mentioned Sq.feet of undivided share for each unit in the land comprised in the Schedule A Property.
3. The case of the petitioner is that respondent No.2/Developer applied for loan for developing a residential project in property No.558A situated at Ramamurthy Nagar Main Road and obtained project term loan of Rs.534.00 lakhs from respondent No.1 / Vijaya Bank as per sanction memo dated 23.03.2017 (Annexure-'D'). The petitioner was not aware of the loan transaction between the Bank and the Developer. After obtaining the loan from the Bank, respondent No.2 / Developer utilized the said amount for construction of the apartments at Ramamurthy Nagar. Respondent No.2 did not complete the residential apartment on the property covered in the Joint Development Agreement entered into between the petitioner and the second respondent. That being the case, respondent No.1 -8
Bank issued a demand notice dated 01.01.2019 in exercise of powers conferred under Section 13(12) read with Rule 3 of the Security Interest (Enforcement) Rules 2002, calling upon the borrower/guarantor to repay Rs.4,08,92,776.60 (Rupees Four crores eight lakhs ninety two thousand seven hundred seventy six and paise sixty only) together with interest, costs, charges within 60 days from the date of receipt of the notice. The borrower/guarantor/mortgagor having failed to repay the amount, Bank took possession of the property described in the notice including the property belonging to the petitioner vide possession notice dated 11.03.2019 (Annexure-'J'). Immediately, the petitioner issued a letter to respondent No.1/Bank bringing it to the notice of the Bank that the second respondent/Developer was not authorized to raise loan for construction of the scheduled property and there was a clear case of criminal breach of trust and therefore, the petitioner requested the Bank to remove the property from SARFAESI proceedings. Since respondent No.1 failed to respond to this notice, petitioner lodged a complaint with RBI for redressal on 04.04.2019 (Annexure-'L'). RBI gave an endorsement saying 9 that the complaint was not maintainable. In the meanwhile, respondent No.1 - Bank filed an application before the learned Magistrate under section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ("SARFAESI Act" for short) seeking assistance of the Court to take physical possession of the mortgaged property. Pursuant to the orders of the learned Magistrate dated 27.08.2019, respondent No.1/Bank took physical possession of the schedule property and hence the petitioner has sought for the following reliefs:-
a) Issue a Writ, Order or Direction in the nature of Writ of Certiorari to quash the physical possession of the schedule property of the Petitioner taken on 16.12.2019 (Annexure-Q) under the provisions of the SARFAESI Act by the Respondent-Bank as illegal, arbitrary, and in violation of principles of natural justice and therefore violation of Article 14 of the Constitution of India.
b) Issue a Writ, Order or Direction in the nature of Writ of Mandamus directing the Respondent-Bank to release the schedule property from unlock the same to hand over to the Petitioner.10
c) Issue a Writ of Mandamus directing the Respondent-Bank to remove/release the schedule property from the mortgage forthwith.
d) Pass such other order/s which this Honourable High Court deems just and proper in the circumstances of the case, in the interest of justice and equity.
4. The second respondent/Developer is duly served and has not chosen to contest the petition, whereas the first respondent/Bank has filed a detailed statement of objections. Paras 4 and 10 of the objection statement, which are relevant for our purpose, are extracted herein below:
"4. It an admitted fact that the respondent no.2 availed loan facility to the tune of Rs.5.34 Crore from the respondent bank for developing of residential project during the year 2017. In consideration of availing the said Loan the petitioner executed various security documents with the respondent no.2 and the respondent no.2 in turn executed loan documents in favour of the Respondent Bank agreeing to repay the said loan amount with interest as agreed upon. The respondent no.2 failed to repay the Loan. As a result thereof, 11 the loan in question came to be classified as non-performing asset on 31.12.2018. Respondent Bank initiated SARFAESI action by issuing demand notice dated 01.01.2019 under Section 13 (2) of the SARFAESI Act for recovering outstanding amount of Rs.4,08,92,776.60/- as on 31.12.2018 together with further interest and other charges.
xxxxxx xxxxxx
10. The respondent Bank categorically put before this Hon'ble Court that as per the Sharing Agreement dated 13.02.2017 and alongwith Joint Development Agreement dated 10.02.2017 between Petitioner and Respondent No.2 the property being Flat Nos.103, 104, 106, 201, 202, 204, 205 and 206 are fallen to the share of Developer. The Respondent Bank initiated SARFAESI action only against these properties as the construction of these Flats being Flat No.103, 104 and 106 are completed but remaining flats mentioned in the properties of Schedule "C" property of Annexure "C" to the writ petition are still under construction. Hence the Respondent Bank are not in a position to initiate SARFAESI against these remaining flats.12
All these facts are absolute within the knowledge of the Petitioner.
(underlining supplied)
5. I have heard learned counsel for petitioner and learned counsel appearing for respondent No.1.
6. The main contention urged by the learned counsel for the first respondent is that the writ petition is not maintainable in view of the alternate remedy available to the petitioner under section 17 of the SARFAESI Act. Referring to section 17 of the SARFAESI Act, learned counsel for first respondent has emphasized that, any person including borrower, aggrieved by any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor or his authorized officer under this Chapter, is required to make an application along with such fees, as may be prescribed, to the Debts Recovery Tribunal having jurisdiction in the matter within 45 days from the date on which such measures had been taken. Petitioner having not taken any such action is not entitled to maintain the petition.
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Secondly, it is argued that the subject property having been offered as collateral security by respondent No.2, by executing a mortgage deed as per Annexure-'E', the Bank is well within its powers to enforce the said security, by taking recourse to SARFAESI Act, as such, action of respondent No.1 - Bank does not suffer from any error or illegality, as sought to be made out by the petitioner.
7. In the light of the above contentions, the points that arise for consideration are:
(1) Whether the schedule properties belonging to the petitioner are liable to be proceeded under the SARFAESI Act for recovery of loan due to respondent No.1/Bank?
(2) Whether the writ petition is not maintainable in view of the alternate remedy provided under section 17 of the SARFAESI Act?14
POINT NO.1:
8. Respondent No.1 appears to have taken recourse to the provisions of SARFAESI Act, to recover the loan alleged to have been advanced to the second respondent/Developer. Though in its objection statement, in para 4 extracted above, respondent No.1 has contended that respondent No.2 availed the loan facility to the tune of Rs.5.34 Crore from the respondent No.1 Bank for developing residential project during the year 2017, respondent No.1 has not produced any documents to show that respondent No.2 has availed any such loan from respondent No.1 for developing the schedule properties, which is the subject matter of the Joint Development Agreement between the petitioner and the second respondent. On the other hand, Annexure-'D' namely, the sanction memo issued by respondent No.1 / Bank clearly reveal that the loan was borrowed by M/s.SreeReddy Properties Private Limited a totally different entity altogether. Sanction memo clearly recites that the aforesaid loan of Rs.534.00 lakhs was released for development of the residential project under JDA with 24 flats on a land 15 measuring 10573 sq.ft. in respect of property No.558A, PID No.88-80-58A, Ramamurthy Nagar Main Road, Dodda Banaswadi, KR Puram Hobli.
9. Undeniably, the second respondent has entered into Joint Development Agreement with the petitioner in his individual capacity and not in the capacity as the Managing Director of the borrower Company. M/s SreeReddy Properties Private Limited, the borrower of the loan is not a party to the Joint Development Agreement. Respondent No.1 has sanctioned the loan to M/s.SreeReddy Properties Private Limited and not to the second respondent. That apart, the purpose of the loan as depicted in Annexure-'D' / sanction memo clearly disclose that the said loan was sanctioned for development of the residential project in property No. 558A, PID No.88-80-58A, Ramamurthy Nagar Main Road, Dodda Banaswadi, KR Puram Hobli. The schedule property which is the subject matter of the Joint Development Agreement is situated at No.24, 2nd cross, Thomas Road, Kammanahalli, Bangalore. The said Joint Development Agreement did not authorize the second respondent to offer the 16 subject properties as collateral security to any loan availed by the Company. On the other hand, clause 8.1 of the Joint Development Agreement extracted above, prohibited the second respondent from offering his share in the schedule property as security for any purpose other than for development of the schedule property. In view of this clause, respondent No.2 was not competent to create a charge over the schedule property even in respect of his share in favour of any third party.
10. The General Power of Attorney executed by the petitioner no doubt authorized the second respondent to sign and execute sale deed/s, lease deed/s or mortgage deed/s, exchange deed/s and other conveyance in respect of 50% undivided share, right, title and interest and ownership in respect of the schedule property or such proportionate undivided share, right, title, interest and ownership in the schedule property, but it did not authorize 17 the second respondent to offer the schedule property as collateral security for the loan availed by M/s.SreeReddy Properties Private Limited. In this context, it is also relevant to note that the mortgage deed is executed in favour of Vijaya Bank by (1) Smt.V.Hemavathi, (2) M/s.Sreereddy Properties Private Limited, (3) Mr.G.Sirish Kumar Reddy. There is nothing in the said mortgage deed to indicate that the second respondent has executed the mortgage deed in his capacity as an agent of the petitioner so as to bind her to the terms of the mortgage-deed.
11. Apart from the above, going by the terms of the Joint Development Agreement referred above, respondent No.2 had no right to create any charge or encumbrances in and over the schedule property until physical possession of the completed apartment was delivered to him. There is nothing on record to show that as on the date of sanction of the alleged loan, the second respondent had either completed the structures or had obtained any possession of the apartments described in Schedule 'C', so as to justify the stand taken by the first respondent that it had advanced the loan on the charge of the 18 apartment fallen to the share of the second respondent in terms of the aforesaid Joint Development Agreement. In this context, it is also important to note that the Joint Development Agreement was executed on 10.02.2017. The loan was sanctioned on 23.03.2017 (Annexure-'D'). It cannot be believed that the second respondent had completed the aforesaid apartment within a short duration of 40 days from the date of execution of the Joint Development Agreement. In any case, there being no document in proof of the delivery of possession of completed apartment to petitioner, it cannot be presumed that respondent No.2 had derived any legal right to offer schedule property or any part of it including apartment described in Schedule 'C' as security for the loan availed by the Company of which he was a Managing Director. As a result, it follows, that respondent No.1 had not derived any security interest in respect of the Schedule 'C' property which it could enforce towards recovery of the loan advanced to M/s.SreeReddy Properties Private Limited.
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12. Coming to the legal aspect of the case is concerned, section 13(4) of the SARFAESI Act permits the secured creditor to take recourse to one or more of the following measures namely:-
(a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset;
(b) take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset:
Provided that the right to transfer by way of lease, assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt:
Provided further that where the management of whole, of the business or part of the business is severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security for the debt;20
(c) appoint any person (hereafter referred to as the manager), to manage the secured assets the possession of which has been taken over by the secured creditor;
(d) require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay the secured debt.
The expression "secured assets of the borrower" used in sub-clause (a) of section 13(4) leaves no manner of doubt that the secured creditor could proceed to recover the secured debt only by taking possession of the secured assets of the borrower and not of any other person.
13. In the instant case, as already discussed above, respondent No.2 was not the borrower of the loan from respondent No.1. Respondent No.1/Bank had not derived any security interest over the schedule property. Therefore, none of the measures provided under section 13(4) of the SARFAESI Act 21 were available to respondent No.1. As a result, the action initiated by respondent No.1 through his officer taking possession of the schedule property is patently illegal and without authority of law and contrary to section 13 of the SARFAESI Act. When the second respondent had no right to mortgage or create charge over the schedule property, respondent No.1 could not derive any security interest in respect of the said property which could be enforced by taking recourse to section 13 or section 13(4) of SARFAESI Act. Since the schedule property do not fall within the meaning of "secured asset" as defined under section 2(zc) of the SARFAESI Act, the action of respondent No.1 to proceed against the property belonging to the petitioner, in my view, is wholly illegal and beyond the powers conferred on the secured creditor.
14. As per section 2(zf), "security interest" means, "2(zf) "security interest" means right, title or interest of any kind, other than those specified in section 31, upon property created in favour of any secured creditor and includes-
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(i) any mortgage, charge, hypothecation, assignment or any right, title or interest of any kind, on tangible asset, retained by the secured creditor as an owner of the property, given on hire or financial lease or conditional sale or under any other contract which secures the obligation to pay any unpaid portion of the purchase price of the asset or an obligation incurred or credit provided to enable the borrower to acquire the tangible asset; or
(ii) such right, title or interest in any intangible asset or assignment or licence of such intangible asset which secures the obligation to pay any unpaid portion of the purchase price of the intangible asset or the obligation incurred or any credit provided to enable the borrower to acquire the intangible asset or licence of intangible asset;"
15. Undeniably, the mortgage-deed in the instant case, has been executed by the second respondent in his individual capacity and not as an agent of the petitioner. As such, even the ingredients of section 2(zf) are not satisfied so as to hold that the schedule property is the secured asset in respect of 23 which security interest has been created in favour of the first respondent. Thus, viewed from any angle, I do not find any legal ground to hold that the first respondent is entitled to proceed against the properties of the petitioner, to recover the outstanding alleged to be due to it, in respect of the loan disbursed to M/s.SreeReddy Properties Private Limited. POINT No.2:
16. Coming to the maintainability of the petition, in view of the bar contained in section 17 of the SARFAESI Act canvassed by learned counsel for respondent No.1 is concerned, in view of the factual conclusion reached by me that the property in question do not fall within the ambit of SARFAESI Act, in my view, even the bar under section 17 of SARFAESI Act does not get attracted to the facts of the case. Even otherwise, section 17 of the SARFAESI Act provides for appeal remedy by a person aggrieved by any of the measures referred to in sub- section (4) of section 13 of the SARFAESI Act. Section 13(4) of the SARFAESI Act, as already explained above, empowers the secured creditor to proceed against the secured assets of the 24 borrower. Therefore, a conjoint reading of section 17 and section 13(4) of the SARFAESI Act makes it clear that only when the property of the borrower is sought to be proceeded against, to recover the secured debt, any person aggrieved by the said measure, could avail the appeal remedy, by approaching the Debt Recovery Tribunal. A reading of sub-section (2) of section 17 makes it further clear that the Debt Recovery Tribunal is invested with the jurisdiction to enquire as to whether any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor for enforcement of security are in accordance with the provisions of the SARFAESI Act and the Rules made thereunder. The Debt Recovery Tribunal cannot enquire into the grievance of the petitioner, as the alleged action has been taken by respondent No.1 in respect of the properties of the petitioner, who does not answer the description of the "borrower" nor does the property of the petitioner described in the schedule answer the description of "secured assets" creating any "security interest" in favour of respondent No.1. Debt Recovery Tribunal therefore is not competent to grant any relief to the petitioner. Hence, the argument of learned counsel for 25 respondent No.1 that the petitioner is provided with adequate alternative remedy, by way of appeal under section 17 of the SARFAESI Act, cannot be accepted. Even otherwise, it is a well settled principle of law that the existence of alternative remedy is not a bar to exercise jurisdiction under Article 226 of the Constitution of India when the alternative forum provided under the Statute is not competent to grant the relief to the aggrieved party. In that view of the matter, the legal contentions urged by the learned counsel for respondent No.1 based on section 17 of the SARFAESI Act, do not merit acceptance.
17. In the light of the above discussion and for reasons stated above, I hold that the action initiated by respondent No.1 under section 13(4) of the SARFAESI Act insofar as the properties belonging to the petitioner described in Schedule 'C', are illegal, arbitrary and without authority of law. Consequently, the order dated 27.08.2019 (Annexure-'P') passed by the X Addl. C.M.M., Bangalore and taking possession of the schedule property by respondent No.1 on 16.12.2019 (Annexure-'Q') are set-aside.
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Respondent No.1 - Bank is directed to release the schedule property to the possession of the petitioner forthwith.
Petition is allowed in terms of the above order.
Sd/-
JUDGE Bss